Ever since the market crashed at the start of the pandemic, several key sectors and companies have emerged with better-than-expected earnings and a surprisingly dominant market share. These industries haven’t just outperformed the market — they’ve blown the competition out of the water and soared well beyond overvaluation territory.
At least, they would be overvalued in a normal market.
But 2020 is a year unlike any other in recent history, and with the advent of new societal norms come a new set of rules. And these rules appear to be skewed toward a favored few: namely, tech and stay at home stocks.
A(n Un)Surprising Set of Frontrunners
When you think tech and stay-at-home stocks, your local neighborhood grocer may not be the first business that comes to mind.
And yet, in the era of coronavirus, retail giants such as Walmart, Target, and even Home Depot and Lowe’s have taken advantage of technology to cultivate a stay-at-home approach in a locked down world.
In the case of grocery-oriented retailers, as well as online giant Amazon, these companies had the benefit of previously built delivery and store pickup infrastructure. Due to the unique constraints of stay-at-home orders, the pandemic provided retailers a chance to vastly expand their efforts — and promote their e-commerce alternatives in the process.
Walmart, for instance, made a massive shove to move operations online as the pandemic settled in. Even though the company was deemed essential and allowed to keep its doors open, it still posted a whopping 97% increase in e-commerce growth in Q2/20.
Target, too, saw a substantial uptick in its e-commerce division, more than tripling online sales in the second quarter of 2020. Not to mention, the company’s latest financial report marks a $5 billion increase in market share.
This enormous boon comes as big box retailers scoop up customers left and right from nonessential competitors. Whereas specialty stores were largely forced to shutter shop (sometimes permanently) during the height of the pandemic, big box retailers who maintained a grocery section were allowed to keep their doors open.
Although customers were allowed in for the food, many of them stayed for the home goods, arts and crafts, and clothing sections as well.
Meanwhile, Specialty Stores Tumbled Down the Rabbit Hole
Retail has always been a competitive space with razor-thin margins — but the pandemic has pushed many companies over the edge.
At the same time that superstores were doing massive business, luxury department outlets and other specialty stores were forced to shutter up. Companies such as Kohl’s, TJ Maxx, and Lord and Taylor’s al suffered steep declines in sales as malls around the country were forced to suspend operations.
While some of these companies were struggling before the pandemic, government-mandated closures made their situations all the worse. However, perhaps their bigger problem was how little these giants had — and since have — invested in online retail offerings.
Even as U.S. e-commerce sales have skyrocketed 44.5% year-over-year in Q2, department stores, clothing retailers, and specialty outlets have struggled to make the time — and allocate the funds — to developing a stronger online presence.
Take luxury department store chain Lord and Taylor. The embattled clothing retailer’s prospects looked bleaker as the pandemic raged on and malls remained closed. But, even after doors reopened, the company struggled to pull visitors inside. Their scant efforts to adopt a functional online model did little to bolster their margins, either.
Finally, on 2 August, the company filed for Chapter 11 bankruptcy and announced that the company would close half of its stores. Liquidation and layoff proceedings began at several locations — but it wasn’t enough to save the company. By the end of August, the company announced that all 38 locations would close their doors forever.
Adaptation is Key to Pandemic Survival
However, not every department store fell prey to the pandemic’s spread.
Long-beleaguered specialty department store Macy’s was one of many that reported hemorrhaging balance sheets in the first two quarters of 2020. With a bleak outlook and the prospect of bankruptcy looming ever closer in the future, the company announced large layoffs and store closures across North America.
But at the same time, Macy’s was taking cues from its website-savvy competitors. The company shifted its business model online as quickly as it could, leading to a year-over-year 53% increase in their digital sales, even after some locations reopened throughout the summer.
One surprising step the company took is unique in its industry: although the CEO reported that 30% of digital sales are fulfilled in physical locations, Macy’s converted two of its brick-and-mortar shops into fulfillment centers. This preemptive move to get ahead of the holiday season and further expand its digital presence is an unusual — and so far, effective — capitalization of the industry’s online potential.
Zooming to 50 Times Market Value
On the other side of the coin, it should come as no surprise that the real winners of the pandemic market already dominated the online space.
Zoom in particular has leapt ahead of the pack. As CNBC reported, the company has seen a 688% increase in its stock prices this year, leading some investors to worry the company could be overvalued. However, the company hasn’t reached its high in leaps in bounds — rather, through a series of steady upward steps.
Zoom is in a unique situation as one of a relatively few companies that never crashed with the market. While the rest of the market was falling to pieces, Zoom’s upward journey was just beginning as businesses and individuals had to find new ways to work, connect, and relax.
And yet, even 50-times-market-value Zoom has its set of challenges. The company is just now producing a rough 2% operating margin — but this 9-year-old company still has to compete with the likes of specialty webinar services, as well as tech giants like Microsoft that dominate the market.
Still, the comparatively tiny company seems to be holding its own.
On the Entertainment Side of Things…
…We have the pièce de resistance of the pandemic market: the Disney+ vs Netflix rivalry.
When you think of tech and stay-at-home stocks, these definitely are the types of companies you have in mind.
Netflix in particular has used the pandemic to capitalize on previously untapped markets. The company banked record numbers of new subscribers at the height of the crisis, bringing total viewership to 183 million accounts. As a result, Netflix is enjoying massively bloated stock prices, with shares up over 67% for the year.
Disney as a whole hasn’t fared nearly as well. In addition to theme park closures, the company also had to contend with a pause in live-action filming, not to mention the lack of a box office to pack.
However, their new Disney+ offering may prove to be their saving grace — if the company will focus the proper effort. Although Disney+ already rosters an impressive 60.5 million subscribers, the platform is still young and just now ramping up streaming capabilities near pandemic-appropriate levels.
Not to mention, Disney has already weathered various outcries on their toddling platform, from complaints that the behemoth is monopolizing their own products to various controversies around the live-action Mulan.
However, one of their biggest downfalls thus far has been the lack of capitalization of their new greatest asset. In order to turn a profit — let alone complete with Netflix — the company needs to turn their attention to nurturing their latest product, rather than throwing out the prospect and seeing what happens.
To that end, the company has recently announced that it plans to increase promotion, expansion, and content production for Disney+ in the future.
In short, the company is working to keep the promise that CEO Bob Iger made in February of 2019: Streaming is Disney’s new top priority.
What’s the Common Denominator?
Across the industries and retailers in this article, a single theme unites their success: they dominated online, stay-at-home, and contactless markets.
A successful business in 2020 is one that focused efforts on digital marketing and products, from e-commerce to SaaS.
In the case of online-only businesses, success was less about moving to the web and more about capitalizing on the market. Via a combination of marketing and sheer customer boredom (looking at you, Netflix), these industries were able to rake in customers left and right.
Now, it’s just about keeping them.
With brick-and-mortar retailers, however, success in 2020 was contingent upon one (or both) of two factors: being deemed essential and profiting as your competition closed their doors — or moving operations online as quickly as possible.
Any company that was unwilling or unable to do so saw a drastic decrease in consumer sales — if they saw any at all.